Hong Kong is staring at recession and uncertainty in the labour market in the first half of this year despite the government’s HK$170 billion (US$21.8 billion) package of measures to fight the havoc wreaked by the Covid-19 pandemic.

Business chambers welcomed Financial Secretary Paul Chan Mo-po’s budget on Wednesday, in which he dished out financial aid to individuals and businesses and set the scene for post-pandemic economic growth.

But some economists remained worried about Hong Kong’s economic health in the near to medium term, pointing to growing threats from the city’s protracted isolation as a result of tough pandemic measures in line with its “dynamic zero-infection” strategy.

Business chambers welcome the budget measures for supporting the public health battle and preparing the way for post-pandemic growth.

“Overall, there are more worries than solutions to the economy,” said Kevin Lai, Daiwa Capital Markets Hong Kong chief economist, Asia. “We expect a double dip in the economy – the gross domestic product (GDP) and unemployment rate – in the next few months.”

Chan’s HK$170 billion rescue package included HK$66.4 billion in spending e-vouchers for eligible residents and HK$67 billion to support the fight against the pandemic.

The total exceeded last year’s HK$120 billion package but was less than the HK$300 billion worth of measures two years ago.

The massive spending will leave a HK$56 billion deficit, equal to 1.9 per cent of GDP, for the next financial year.

Chan expected the stimulus measures to catapult the economy to 2 to 3.5 per cent growth this year, although he was not optimistic about its performance in the first three months of the year.

Economist Lai said he expected the economy to contract in the first half of the year, following on the quarterly growth of 0.2 per cent in the last three months of last year.

He also anticipated the unemployment rate would yo-yo after rising sharply from 3.1 per cent at the end of 2019 to 6.8 per cent in February last year, before falling to 3.9 per cent last month.

The Hong Kong General Chamber of Commerce, Chinese Manufacturers’ Association, Federation of Hong Kong Industries and Chinese General Chamber of Commerce welcomed the budget measures for supporting the public health battle and preparing the way for post-pandemic growth.

There was wide support among them for the government’s increased investment in innovation and technology.

Simon Lee Siu-po, an honorary fellow at Chinese University’s Asia-Pacific Institute of Business, said budget measures would stop the struggling economy from rolling further downhill, but the more worrying issue was the lack of a well-planned anti-pandemic policy.

“Some senior management of multinational corporations are leaving Hong Kong and they have alternatives, such as Singapore,” he said. “As far as the economic outlook in the medium term is concerned, it really depends on whether Hong Kong can restore free flow of people.”

A resident walks past closed retail shops in Causeway Bay. Small and medium-sized enterprises have been hit by the latest social-distancing curbs.

The budget measures include giving all eligible residents HK$10,000 of e-vouchers each to spend, with the first HK$5,000 in April, but Lai said this might not benefit many small and medium-sized enterprises already on the verge of collapse.

They have been hit by the government’s latest move to extend social-distancing curbs by three months to April, which means some will have their operations severely restricted while others will have to stay shut.

“On the one hand, the government tells everyone to stay home for social distancing, but on the other, it asks you to go and spend. The policies are conflicting,” Lai said.